Timing Timing Timing Timing
Competing Offer Within 15 working days of the date of DPS
SEBI to provide comments on the LOO
Not later than 15 working days of the receipt of the draft LOO and if no comments are issued within such period, it shall be deemed that SEBI has no comments. Clarifications sought by SEBI: period for issuance of comments extended to the 5th working day from the date of receipt of satisfactory reply to the clarification.
Dispatch of final LOO to the shareholders
Within 7 working days of receiving comments from SEBI or in case no comments are received within 7 working days from expiry of 15 days from filing of the draft LOO with EBI.
Upward revision in number
and/ or price of shares Anytime till last 3 business days prior to the commencement of the tendering period.
Intimation of upward revision
Public announcement in the same newspapers in which the DPS was published and simultaneous intimation to SEBI, SE and the target company
Comments on the offer by Independent Directors
2 working days prior to commencement of the tendering period
Advertisement of schedule of activities
1 working day before the commencement of the tendering period. Together with the schedule of activities for the open offer, the status of statutory and other approvals, the procedure for tendering acceptances etc to be advertised.
Timing
Timing Disclosure of acquisition
during the offer period
Disclosure to the SE and the target company within 24 hours of acquisition
Commencement of tendering period
Not later than 12 working days from the date of receipt of the comments on draft LOO from SEBI
.
Closure of tendering period
Post offer advertisement
Open special escrow account
Completion of all obligations by acquirer including payment of consideration
Merchant Banker to release the remaining escrow funds
Offer has to be kept open for 10 working days
Within 5 working days after the offer period. Advertisement to be published in newspaper and sent to SEBI and SE, providing details of aggregate number of shares tendered, accepted, date of payment of con- sideration.
Immediately after closing the tendering period as the acquirer has to complete payment of consideration within 10 working days of expiry of tendering period. Transfer aggregate consideration payable to the special escrow account.
Within 10 working days from the from the last date of the tendering period
Within 30 days from the payment of the consideration to the shareholders. Timing Timing Timing Timing Timing
1. When does the Open Offer Process
Start? Does it Differ for a Mandatory
Offer v/s a Voluntary Offer?
The open offer process always begins with the appointment of a merchant banker as the manager to the offer by the acquirer. There is no difference between mandatory open offer and voluntary open offer on this count and the first step in both kinds of open offers is the appointment of the manager to the offer.
2. Is There a Difference Between the
PA, DPS and the LOO?
Yes. The PA, DPS and the LOO are three different documents to be issued by the acquirer and the PACs at three different stages of the open offer process. The PA is the first announcement made by the acquirer of the open offer disclosing details of the transaction and the intention to acquire shares of the target company from existing shareholders by means of an open offer. The PA has to be made
on the date of agreeing to acquire shares or voting rights in, or control over the target company but depending upon the mode of acquisition, specific timing has been prescribed for making the PA. Please see the next question for such prescribed timing. The DPS is the next announcement made by the acquirer and the PACs disclosing all the relevant details of the open offer as may be specified in order to enable shareholders to make an informed decision with reference to the Open Offer. The DPS has to be made within 5 working days from the date of making the PA.
While the PA and the DPS are disclosures made by the acquirer and the PACs to intimate to the public of an exit opportunity available to them, the LOO is the offer made by the acquirer to the identified shareholders of the target company to purchase their shares. The acquirer has to submit a draft of the LOO to SEBI for its comments. The LOO has to be dispatched by the acquirer to the shareholders of the target company after incorporating the comments provided by SEBI, if any.
7. Frequently Asked Questions
3. When Should a Public Announcement be Made?
Transaction PA Timing
Market purchase of shares Prior to placement of purchase order with stock broker Acquisition of shares or voting rights, upon
conversion of convertible securities: • Without fixed date of conversion; • With fixed date of conversion
• On the date ofexercise of option to convert such securities; • On second working day prior to the scheduled date of conversion Acquisition pursuant to disinvestment On the date of executing agreement
Acquisition or control under preferential issue On the date board of directors of the target company authorizes such preferential issue.
Increase in voting rights consequential to a buyback not qualifying for exemption.
Not later than 90th day from the date of closure of the buy-back leading to increase in voting rights beyond the threshold. Acquisition where the specific date on which
the title to such shares or voting rights or control acquired is beyond the control of the acquirer.
Not later than 2 working days from the date of receipt of intimation of having acquired such title.
Indirect acquisition where value of the target company is not more than 80% of overall transaction
Within 4 working days from the earlier of:
• The date on which primary acquisition is contracted; • The date on which the intention or the decision to make the
primary acquisition is announced in public domain Indirect acquisition where value of the
target company is more than 80% of overall transaction
On the earlier of:
• The date on which primary acquisition is contracted; • The date on which the intention or the decision to make the
primary acquisition is announced in public domain In case of more than one mode of acquisition
either by way of an agreement and the one or more modes of acquisition of shares as provided under Regulation 13(2) of the Takeover Code or only through one or more modes of acquisition as provided under Regulation 13(2) of the Takeover Code
On the date of first such acquisition giving the details of the proposed subsequent acquisition.
4. Should the LOO be Sent to all the
Shareholders of the Target Company?
The LOO has to be dispatched to all the shareholders whose names appear on the register of members of the target company as of the Identified Date. “Identified date” means the date falling on the 10th working day prior to the commencement of the tendering period.
5. What is the Offer Period?
“Offer period” means the period between the date of entering into an agreement to acquire shares, voting rights in, or control over a target company requiring a public announcement, or the date of the public announcement, as the case may be, and the date on which the payment of consideration to shareholders who have accepted the open offer is made, or the date on which open offer is withdrawn, as the case may be.77 In light of the criticality of the time period for the success of the open offer and the interests of the stakeholders, the Takeover Code imposes certain obligations on the target company and its directors, the acquirer and the manager to the open offer to be fulfilled during the ‘offer period’.
6. What is the Offer Size? Can it Ever
be Increased or Decreased?
In case of mandatory open offer, the minimum offer size is 26% of the total shares of the target company as of 10th working day from the closure of the tendering period taking into account all potential increases in the shares of the target company during the open offer.
In case of voluntary offer made by a shareholder holding in excess of 25% of shares or voting rights of the target company, the minimum offer size shall be an additional 10% of the total shares of the target company, and the maximum offer size shall be such number of shares as would result in the post-acquisition holding of the acquirer and PACs with him not exceeding the maximum permissible non-public shareholding applicable to such target company.
In case of voluntary offer made by a shareholder holding less than 25% of shares or voting rights of the target company, the minimum offer size is 26% of the total shares of the target company.
The Takeover Code does not permit the acquirer to reduce the open offer size but an upward revision of offer size is permitted subject to fulfilment of the
prescribed conditions.
7. What is a Conditional Offer?
A conditional offer is an open offer made under the Takeover Code where the offer is conditional upon minimum level of acceptances. In such case, the acquirer will disclose a minimum percentage / number of shares that the acquirer intends to acquire in the open offer, failing which the acquirer shall have the option not to acquire any shares in the open offer or under the agreement that triggered the mandatory open offer. Conditional offers are also subject to the other conditions prescribed under the Takeover Code.8. How is the Offer Price Determined?
Does this Differ if the open Offer is
a Voluntary Offer or the Open Offer
is Launched Pursuant to an Indirect
Acquisition or a Change in Control?
Can the Offer Price be Increased or
Decreased?
The fundamental principle of the Takeover Code is to provide an exit opportunity to the public shareholders when there is a change in control or substantial acquisition of shares of the target company at the best possible terms. Therefore, the offer price to be paid to the public shareholders is the highest of the prices under Regulation 8 of the Takeover Code. The parameters for determining as prescribed under Regulation 8 of the Takeover Code are the same for a mandatory offer and a voluntary offer but certain additional parameters are prescribed for determining the offer price when the offer is pursuant to an indirect acquisition.
The Takeover Code does not permit the acquirer to reduce the offer price but an upward revision of the offer price is permitted subject to fulfilment of certain prescribed conditions.
9. Should the Offer Price Always be
Paid in Cash? What are the Other
Means of Paying the Offer Price?
The offer price can be paid in any of the following forms:78a. Cash;
b. Listed shares in the equity share capital of the acquirer or any PAC;
c. Listed secured debt instruments issued by the acquirer or any PAC, which has been given a rating not less than investment grade by a SEBI registered credit rating agency;
d. Convertible debt securities convertible to the listed shares of the acquirer or any PAC; or e. A combination of any of the above.
10. Who are the Advisors to the
Acquirer During the Period?
The acquirer should compulsorily appoint a SEBI registered merchant banker as the manager to the offer. The acquirer may at its option a registrar to the offer and shall also engage other legal and financial advisors.
If securities of listed company are offered as consideration in the open offer then the share exchange ratio will have to be duly certified by an independent merchant banker (other than the manager to the open offer) or an independent chartered accountant having a minimum experience of 10 years.
11. What are their Obligations?
The following are the key obligations of the manager to the open offer:
a. Make the prescribed announcements and disclosures on behalf of the acquirer.
b. Ensure, prior to public announcement that the acquirer is able to implement the open offer; and firm arrangements for funds have been made by the acquirer.
c. Ensure that the contents of all the
announcements and disclosures made by the acquirer and PAC in relation to the open offer are true, fair, not misleading and in compliance with Takeover Code
d. Furnish to SEBI a due diligence certificate along with the draft LOO.
e. Ensure that the market intermediaries engaged for the purposes of the open offer are registered with SEBI.
f. Exercise diligence, care and professional judgment to ensure compliance with Takeover Code.
g. Operate and manage the escrow account. h. Provide clarifications sought by SEBI in the draft
LOO and incorporate comments if any made by SEBI in the LOO.
i. Not deal on his own account in the shares of the target company during the offer period.
j. File a report with SEBI within fifteen working days from the expiry of the tendering period, in the prescribed format, confirming status of completion of various open offer requirements.
12. What are the Obligations of the
Directors of the Target Company?
79 The Takeover Code requires the board of directors of the target company to do the following:i. to facilitate the acquirer in the verification of shares tendered in acceptance of the open offer;
ii. to make available to all acquirers making competing offers, any information and co- operation provided to any acquirer who has made a competing offer;
iii. to register without delay the transfer of shares acquired by the acquirer in physical form, whether under the agreement or from open market purchases, or pursuant to the open offer; iv. to ensure that, during the offer period, the
business of the target company is conducted in the ordinary course consistent with past practice; and
v. to ensure that the obligations of / restrictions on the target company (discussed below) are adhered to.
The board of the target company is also required to constitute a committee of independent directors on the board to provide reasoned recommendations on the open offer which recommendations are then published by the target company.
Under Regulation 23(4) of the 1997 Code, it was optional for the board of the target company to provide unbiased comments and recommendations on the offer to the shareholders. The Takeover Code has made this a mandatory obligation, in line with global practice.
Further directors appointed or proposed to be appointed by the acquirer are saddled with the following obligations / restrictions.
a. A representative of the acquirer or the PAC is not entitled to be appointed as the director of the target company during the offer period unless:
i. fifteen working days have expired from the date of DPS;
ii. acquirer has deposited 100% of the
consideration payable under the open offer in the escrow account, in cash;
iii. acquirer has not specified any conditions to which the agreement triggering the open offer is subject to; and
iv. open offer is not made conditional upon minimum level of acceptances.
b. Any director already on the board representing the acquirer or PAC is not entitled to participate in any deliberations of the board of the target company or vote on any matter in relation to the open offer. Further, during the pendency of competing offers, no directors may be inducted on the board of the target company unless the a vacancy is created by death or incapacitation of an existing director and shareholders permit for this vacancy to be filled up through a postal ballot.
13. What are the Obligations of the
Target Company During the Offer
Period?
The target company and its subsidiaries are forbidden
to carry out certain corporate actions (enlisted below) unless the approval of shareholders of the target company is obtained by way of a special resolution by postal ballot. These include the following:
a. Alienation of material assets or effecting material borrowings;
b. Issuance of new securities or affecting a change in the capital structure subject to certain exceptions; c. Entering, amending, terminating material
contracts;
d. Accelerating any contingent vesting of a right of any person to whom the target company or any of its subsidiaries may have an obligation (including ESOP option).
14. What are the Obligations of the
Acquirer?
a. Prior to making the PA of an open offer, the acquirer shall ensure that firm financial arrangements have been made for fulfilling the payment obligations under the open offer and that the acquirer is able to implement the open offer, subject to any necessary statutory approvals.
b. Not to alienate any material assets of the target company or of any of its subsidiaries outside the ordinary course of business for a period of 2 years after the offer period unless:
i. the acquirer has declared an intention in the DPS and the LOO to do so; or
ii. the alienation is approved by a special resolution passed by shareholders of the target company, by way of a postal ballot and the notice for such postal ballot inter alia contains the reasons for the alienation.
c. Ensure that the contents of all the
announcements and disclosures made in relation to the open offer, are true, fair, not misleading and are based on reliable sources, and state the source wherever necessary.
d. The acquirer and PAC shall not sell shares of the target company held by them, during the offer period.
e. The acquirer and PAC shall be jointly and severally responsible for fulfilment of obligations
under the Takeover Code.
15. Can 2 open Offers Occur
Simultaneously?
Other than competing offers that are made within 15 working days of public announcement of first open offer there can be no other open offer made during the subsistence of one open offer. Regulation 20(5) prohibits persons from making a public announcement of an open offer for acquiring shares, or entering into any transaction that would trigger the Takeover Code requiring a mandatory open offer, after 15 working days from the date of public announcement of an open offer under the Takeover Code (voluntary or mandatory) till the expiry of the offer period
16. When can a Competing Offer
be Launched? Does this Differ in a
Voluntary Offer?
Any person other than the original acquirer who has made the subsisting open offer can make a